The last 72 hours have been remarkable enough for their political novelty. But the next 48 hours may shape everything about the next phase of British government. The tensions within and between the political parties are building to a climax, perhaps today, perhaps tomorrow. There seem to be only three realistic options in the light of last week's general election result. Either the continuing talks between the Conservatives and the Liberal Democrats will produce a governmental agreement. Or the Labour party and the Liberal Democrats will explore and then make an alternative agreement. Or, finally, no interparty agreement being possible, David Cameron will attempt to form a minority Conservative administration.

Each of these courses has a logic that should not be dismissed too readily. Yet none is without peril for the country and the parties. The stakes are dramatically highlighted by the continuing eurozone debt crisis, which may threaten the UK's fragile economic recovery in ways that no one today can predict. Nevertheless, the longer the talks between the Conservatives and the Liberal Democrats continue, the greater the danger that Nick Clegg's party of reform may find itself manoeuvred into an agreement with a Conservative party that opposes reform. Such an outcome would devastate and demoralise many Lib Dem members and supporters and risk setting back the cause of progressive politics in Britain for a generation. Political leaders such as Charles Kennedy, Shirley Williams, David Steel and Menzies Campbell – to say nothing of hundreds of foot soldiers – have surely not toiled so hard for so long to put their names to such an agreement.

Mr Clegg was right to open negotiations with the Tories, who were the largest winners on 6 May. But he now seems to believe that an absolute insistence on electoral reform in his party's negotiations with the Conservatives would be an unstatesmanlike response to the challenges which now face Britain, on the economy and public spending above all. That concern is understandable. But it should not lead the Liberal Democrats into an alliance with a much stronger Conservative party whose draconian approach to the fiscal crisis received no ringing endorsement from the voters last week, least of all when the Tories offer no credible prospect of bankable electoral reform either. The Tory party was driven into the weekend talks purely by expediency, not principle. They remain the Lib Dems' foes, not their friends. They want to eat the Lib Dems up.

The same is true of some in the Labour party. But Labour, for all its faults, increasingly understands that the future of British politics lies in a fairer electoral and political system and in multi-party governments. The openness to such reforms within Labour has come too slowly, but it far exceeds any vestigial concerns in the Tory party. And Labour's losses on 6 May have made the party even more open to reform than before. When that is added to a Labour approach to the economy, public services and fair taxation – to say nothing of other subjects, such as Europe – that is much closer to that of the Lib Dems than any Tory approach, it is clear that the fit between the Lib Dems and Labour is much easier and more principled than any attempt to create a fit between the Lib Dems and the Tories.

The problems have to be acknowledged and faced. Between them, Labour and the Lib Dems do not command a majority in the House of Commons. Other parties would have to be involved too, but this is certainly not impossible or unworkable. There are other progressives in parliament and Northern Ireland MPs of all stamps are well used to the politics of naming and getting their price. Gordon Brown is an obstacle too. Rejected by the voters last week, his continuing role could stigmatise any pact that emerged from Labour-Lib Dem talks, would delegitimise any government formed to implement the pact and – most crucial of all for reformers – harm the prospects of any referendum on any electoral and political reform. For a similar reason it is vital that any referendum agreement be broad enough to include other issues, such as the recall of MPs, a reformed House of Lords and fixed parliaments, which could energise wider support among voters at large. None of this is easy. But that is not a reason for not trying.

Any agreement is a means to an end, not an end in itself. The plain fact about this complex and imperfect political situation is that it is nevertheless also a historic opportunity for reform. There is a broad identity of purpose between the Liberal Democrats and Labour that does not exist between the Lib Dems and the Conservatives. Their common approach extends far beyond electoral reform, important though that is. The best reason for exploring and, if possible, making a Lib Dem-Labour agreement is that this would be the best way of ensuring fairness in the handling of the immensely hard decisions on the economy and public spending that will face whichever government now takes office. Electoral and political reform would be a huge additional reward. This is moment for setting the future direction of British politics. The Liberal Democrats have to choose with whom they will now stand.